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i-Agency M&A Looks Promising

January 19th, 2010 8:31AM by Ronald Wagner

2008 – 2009 saw few interactive agency deals…mainly acquisitions of specialized (social media marketing, analytics, etc.) agencies and some subscale companies looking to be part of a bigger story. Due to the confluence of factors including an improving economic backdrop, increasing ROI focus from CMO’s driving agency service demand, and the capital that has been sitting on the sidelines getting more restless, 2010 is shaping up to be a good year for i-agency M&A. We anticipate that some mid-size players in the $15mm to $40mm revenue range will be active in looking to consolidate, and some larger independents will continue to seek private equity funds to expand transactionally. This all bodes well for a much broader base of prospective interactive agency targets. 2010 should be a great M&A year for the space.

What to Expect from Digital Media in 2010

December 31st, 2009 5:06PM by Brendon Kensel

Most entrepreneurs and operators of digital media and marketing firms are glad 2009 is over and they are looking forward to an improved 2010. Though mid-2009, U.S. digital advertising revenues were down 5.3% from the same period in 2008 according to the IAB Internet Advertising Revenue Report. As of the third-quarter 2009 Forrester Research was forecasting a 13.7% increase in 2010 for digital advertising revenues. Key segments that will likely drive growth in 2010 include:

Content Platforms – We will likely continue to see content aggregators grow both organically and through acquisition in 2010. But the real growth will come through the continued advancement of automation technologies that will produce content people are seeking and deliver advertisements that reach desired audiences. Large-scale players include Demand Media and Internet Brands (NASDAQ: INET). A smaller, emerging player includes Mail.com Media Corporation (MMC), which was founded by Jay Penske in 2004.

Mobile – Yes, this category has made the list of “emerging trends” each year for the past decade, but what was not in the aughts will begin in the tens. U.S. mobile marketing expenditures are expected to grow from $1.7 billion in 2009 to $2.2 billion in 2010 according to the Mobile Marketing Association. Google’s (NASDAQ: GOOG) recent aggressiveness in the mobile space, whether its pending acquisition of mobile ad network Admob or the launch of its Android mobile operating platform, will have significant ripple effects in 2010. Combined with Apple’s iPhone and RIM’s BlackBerry platforms, consumers are making a meaningful shift to smartphones which will allow advertisers to deliver more targeted advertisements.

Social Engagement – This is the bucket for social games, networks and other points of engagement. While social gaming company Zynga is a great example, there are multiple emerging companies with innovative approaches. A couple of examples include digital agency Zugara’s augmented reality games/applications for marketers, and mobile social network FourSquare that awards points to consumers for broadcasting their location to a network of friends via their mobile device.

The next decade should be fun.

i-Agency M&A Sheds Light on New World Order

August 8th, 2009 1:01PM by Ronald Wagner

Several interactive agency acquisitions over the past year have involved online agencies buying expertise in offline media. Why? Because as the Internet increasingly becomes the hub for consumer interaction and transaction, interactive agencies — especially those with strategy and planning chops coupled with the analytics and reporting functions so critical to cross-channel measurement – are similarly being called on to help guide the overarching marketing strategy for companies. The new world order?!

The State of Online Sales

July 13th, 2009 4:25PM by Josh Greene

Every quarter, Shop.org conducts a survey of online retailers. 2009 is proving to be one of those contrary years, especially in retail — with a  mixture of stops and starts.

59 retailers participated in the Q2 Online Sales Flash Survey. Respondents represented a mix of business type (variations on multichannel, branded manufacturers, pure plays) and annual Web business size. As usual, we asked simply, “How did your gross online sales (top line) for the period April 1, 2009 through June 30, 2009 perform relative to the same period last year”

For more information visit the Shop.org Web site; following are a few highlights:

  • Fully 59% of retailers surveyed reported that their gross online sales had indeed grown for the quarter compared to the same quarter in 2008. 9% reported flat sales (in this economy, nothing to sneeze at), and one third (32%) reported sales decreases.
  • Average YOY quarterly growth across all retailers surveyed was 11.8%
  • Close to two thirds of large retailers ($100+ million in annual Web sales) reported revenue increases for Q2 2009 vs. Q2 2008. Ditto for mid-sized retailers (defined as between $10 million and $100 million in annual Web sales). Smaller retailers (under $10 million) struggled somewhat more, but half of those surveyed in this segment did in fact realize sales growth.

Internet Share of Ad Spending Increasing

July 7th, 2009 12:57PM by Ronald Wagner

ZenithOptimedia, part of Publicis Groupe: The Internet has performed better than expected this year, Zenith raised its forecasts from 8.6 % to 10.1 % growth this year; by 2011 Internet will have a 15.1% share of advertising spending, from 10.5% last year.

The natural migration of money flowing to media where consumer are spending their time continues. If Zenith’s report is even close, we are talking about a sea change over a very short period (2009 – 2011) that will put some air into the sails of a lot of Internet marketing firms. While display advertising as a share of Internet has dropped (PriceWaterhouseCoopers: in the U.S., display-ad spending is expected to drop to $4.4 billion in 2013 from $4.8 billion in 2008), we expect performance marketing spending as a category of Internet spending to continue to increase dramatically. We also see a shift in venture interest away from purely ad-sponsored models, which should provide additional focus on other practical models.

High Performance in Business & Sports Panel Discussion

April 25th, 2009 12:03PM by Brendon Kensel
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From left to right: Brendon Kensel, Managing Partner of Kensel & Co.; Kyle Sherman, EVP of Advertising & Sales of Fox Sports Network; David Meltzer, COO of Leigh Steinberg Sports & Entertainment; Ed Arnold, anchor at KOCE-TV; Dennis Kuhl, President of the Los Angeles Angels of Anaheim; and Bob Wagner, CMO of the Anaheim Ducks & Honda Center.

In February I chaired a panel focused on high performance in business and sports that was hosted by Pepperdine’s Graziadio Alumni Network of Orange County. The panelists included: Dennis Kuhl, President of the Los Angeles Angels of Anaheim; Bob Wagner, CMO of the Anaheim Ducks & Honda Center; Kyle Sherman, EVP of Advertising & Sales of Fox Sports Network; and David Meltzer, COO of Leigh Steinberg Sports & Entertainment. The panel was moderated by Ed Arnold, anchor at KOCE-TV and longtime sportscaster for KTLA-TV and KABC-TV in Los Angeles.

Dennis Kuhl discussed his philosophy on building a winning organization – a topic he knows well having participated in the Angels playoff run that resulted in winning the MLB World Series in 2002. Bob Wagner also shared insights on building a high-performing unit. The Anaheim Ducks won the Stanley Cup in 2007. These two panelists also discussed cultivating sports fans in Southern California, navigating attendance challenges in a down economy, and their paths into pro sports leadership roles.

Kyle Sherman discussed the advertising environment and working with franchises to create authentic sports content and experiences for local fan bases. David Meltzer described working with mega-agent Leigh Steinberg and the rapidly changing world of athlete representation.

Ed Arnold, a veteran sportscaster, said it best when discussing maintaining performance, “hire winners and you will keep winning.”

Private Equity Buyouts: Predictions for 2009 Panel Discussion

January 16th, 2009 10:47AM by Brendon Kensel
Private Equity Buyouts Panel

From left to right: Brendon Kensel, Managing Partner of Kensel & Co.; Phil Thompson, General Partner of Alta Communications; Alexander Haislip, Senior Editor of Thomson Reuters' Private Equity Week; Scott Honour, Senior Managing Director at The Gores Group; and Craig Frances, M.D., Managing Director at Summit Partners.

This fall I chaired a private equity event focused on buyouts and predictions for 2009 that was hosted by Pepperdine’s Graziadio Alumni Network of Orange County. The panelists included: Scott Honour, Senior Managing Director at The Gores Group; Craig Frances, M.D., Managing Director at Summit Partners; and Phil Thompson, General Partner of Alta Communications. The panel was moderated by Alexander Haislip, Senior Editor of Thomson Reuters’ Private Equity Week.

In 2008 there was a 30 percent decline in M&A activity according to a recent study by KPMG. Debt became scarce and expensive and many firms began hoarding cash. Loans backing leveraged buyouts fell 61% to about $21.5 billion during the third quarter of 2008, according to data from Thomson Reuters. The drop put the breaks on deal making.

Summit Partners is currently investing from a $3 billion buyout fund that it raised in 2005. The Gores Group raised $1.3 billion for its most recent buyout fund in 2007. Although neither firm relies solely on leverage, debt is an important part of what they do. Frances said that Summit might typically have borrowed up to 6x a target company’s earnings to get a deal done in 2008. Now that multiple has fallen to 3x earnings. Honour said that Gores has gone from 2x earnings leverage to 100% equity in its transactions. According to Thompson, Alta Communications, which last raised a $500 million fund, also has reduced the leverage it uses in transactions.

Frances attributed the “crisis of confidence” to three key factors: a housing bubble whose early indicators of distress were ignored, the availability of cheap money as “the Fed kept rates too low for too long,” and banks attempting to do too many things, chasing money as traders rather than as advisors.

As for remedies, Frances advocated widespread changes to accounting principles, while Honour suggested that consumer finance habits must change and that lenders need a reason to start lending again — both to consumers and to each other.

The main reason leverage ratios are falling is that GE Capital has shut its checkbook. “You had GE lending to a quarter of the middle market buyout deals,” Frances said. “We had a couple of deals we were working on with them where they said they weren’t doing any lending. It wasn’t a matter of multiples.”

Honour reiterated that message. “We use GE a lot and they told us they were done for the year. When there’s that much dislocation, someone is going to step in.”

A video of the event can be found here: http://www.youtube.com/watch?v=fvRQVt2AE-o

The Golden Age of Online Marketing

December 15th, 2008 5:56PM by Ronald Wagner

Despite writing this during the marketing spending doldrums of a cold 2008 winter, I am equally warmed by hot chocolate and a heated optimism about the future of online marketing. In fact, similar to those who feel there are unequalled investment opportunities to be had during this recession, I believe that from this economic shakedown the online marketing sector is going to emerge stronger than ever, creating a Golden Age of Online Marketing.

Data from Q4 2008 shows that online spending slowed along with other media spending; however, investment in online marketing is still on the ascendant (albeit at a slower rate than over the past several years) while other media – particularly traditional media spending – has seen serious declines. By all accounts, 2009 will be a rough year, but through this turmoil I believe the online marketing space will continue to gain traction as the core of marketer strategic focus (and thus, a magnet for marketer spending). In fact, the decidedly oppressive economic backdrop against which this process is taking place actually plays well to the online marketing sector’s historical causes célèbre: better, more measurable marketing programs with clear ROI and immediate impact. So, when CMO’s do take their feet off the spending brake sometime next year (I just knocked on wood), the acceleration effect on this sector will be tremendous!

In addition to the decade-long, broader natural ‘balancing’ of spending across media, where money continues to chase eyeballs, the Internet will further establish itself as the “hub” of marketing focus and expenditures simply because it is uniquely online where companies’ dialogues with customers and prospects increasingly takes place. Per this power position, online marketing firms will increasingly drive client strategy, control brands, and lead trends…thus, as direct beneficiaries of all of the above, the players in this space will enjoy their Golden Age!

Digital Content at the Piper Jaffray Global Internet Summit

November 13th, 2008 3:15PM by Brendon Kensel

I spent the last two days at the Piper Jaffray Global Internet Summit in Laguna Beach, California. The conference covered Internet, online content, media and enterprise software (particularly SaaS).

An area of particular interest was content distribution and the rapid change that is occurring. According to the Piper Jaffray research team many companies are poised to take advantage of a shift towards digital delivery and away from physical delivery. We have seen a massive shift in music distribution with the emergence of the iPod and video is next. The FCC mandate that all television stations cease analog broadcasts on Feb. 17, 2009 will also likely help accelerate this shift. It is estimated by the U.S. General Accounting Office that 28.0 million U.S. households will need to purchase a digital TV (DTV) or a converter box. This will ultimately open the door to real adoption of digital delivery of video since consumers will not have to change behavior, just TV’s, to receive digital content.

The snake pit of digital distribution continues to be rights management and the content owners balancing act between piracy and usability. With no standardized digital rights management (DRM) technology in use it is hit-or-miss for consumers. In September of this year a group led by Fox, Microsoft, NBC Universal, Paramount Pictures, Sony, and Warner Bros. formed Digital Entertainment Content Ecosystem (DECE) to address growing consumer confusion around buying, downloading and playing digital content offered by multiple services by working toward a simple, uniform digital media experience. We shall see…we are still in the early rounds of a long fight.

While there were many interesting panels and some very good presenters including Neil Ashe, President of CBS Interactive, and Jason Kilar, CEO of Hulu, the “ahha” moment came during a panel of young consumers that shared their Internet and mobile usage habits. They asked a room full of 30 and 40-somethings why they needed a TV. The shift to digital is being fully embraced by the next generation…time to catch up!

Note to Digital Agencies: Strategy First

November 2nd, 2008 10:13AM by Ronald Wagner

After having advised several clients seeking to acquire digital agencies I have seen a desire among buyers to pursue firms with strong strategic capabilities. For an acquirer, the advantages inherent to companies that offer digital strategy capabilities include a higher-level client relationship, higher margin revenues, an ongoing stream of new business opportunities created via strategic recommendations, and of course, smart talent. I’ve previously built such a “digital strategy” group and core offering at two different interactive marketing firms to date (blatantly changing one company’s tag-line from “digital marketing services” to “digital marketing strategy and services” to reflect the clear forward focus on strategic partnering with clients), and therein bore witness firsthand to that empowering element, which is now more centrally a decision-turning factor among acquirers in the digital marketing services space.